It was Mark Twain who put it best when he argued that, while history doesn't
repeat itself, it does rhyme.

Together with the Bank of England, Osborne's belief that cheap money and ultra-low rates are the only way forward has helped prop up tens of thousands of "zombie" firms, delaying the economy's readjustment.Photo: Peter Macdiarmid/Getty Images

He could have been referring to British economic history, and to the increasingly depressing similarities between Chancellor George Osborne's failure to get to grips with the economy and that of his Tory predecessor in the 1970s, Anthony Barber, whose errors, compromises and pusillanimity helped let the Labour Party back in.

The circumstances are, of course, very different but the notes equally false. Both men were part of a small, consensual cadre of politicians who wasted a historic opportunity to repair a broken economy; both were trapped by the intellectually bankrupt conventional economics of their time, as well as by a crippling inability to take on vested interests; both failed to stand up for their core electorate of aspirational men and women; and neither succeeded in dragging Britain, kicking and screaming if necessary, into an economic model ripe for the modern era.

Barber, a war hero who went on to lead Standard Chartered, did some good things while in office, just as Osborne has, but his main contribution was to help manage decline. Sir Edward Heath's government in the 1970s turned out to be one of Britain's worst ever, and its pathetic failure paved the way for an even more abysmal Labour government. Britain is immeasurably more prosperous today than it was 40 years ago, helped by radically improved attitudes; but the Coalition's failure to embrace proper supply-side economic reforms and to jolt the economy back into growth means that David Cameron's premiership increasingly feels as if it will end in the same way as Heath's.

Barring a miracle, there will be a Labour government by 2015 at the latest, armed with the most Left-wing agenda of any government since the 1970s. It is no wonder, therefore, that many of the more radical Tory MPs have become consumed by defeatism; convinced that things must get worse before they can get better, they are beginning to scour for a new Margaret Thatcher who would take over after the election, somehow lead their party to victory in 2020 and begin the long, arduous task of undoing decades of damage. For those of us who don't want to live through another seven years of tax hikes, impoverishment and class warfare, this is an unappealing prospect.

Instead of giving up, it makes more sense to understand the parallels between today and the 1970s, so as to grasp how the Coalition needs to change before it is genuinely too late. Barber's worst error was that he mishandled the liberalisation of credit, and ended up causing an inflationary boom, ending in the secondary banking crisis of 1973-75.

Osborne's problem has been the opposite. He has choked the financial system by imposing excessively fast increases in the amount of capital and liquidity banks are required to hold, egged on by banker-bashers who don't realise that slashing bank balance sheets means reducing credit, and is now desperately trying to compensate by finding new ways to subsidise loans. Together with the Bank of England, Osborne's belief that cheap money and ultra-low rates are the only way forward has helped prop up tens of thousands of "zombie" firms, delaying the economy's readjustment.

Both men devalued the pound. Barber rightly cut some direct taxes but introduced VAT as part of joining the then Common Market; overall, he failed to rescue the UK from its high-tax nihilism and hatred of wealth-creators.

While Osborne has cut some taxes, far more have been raised – including Barber's VAT – than have been reduced, with austerity so far heavily weighted towards tax hikes. Instead of genuine reforms and cuts to current expenditure, we have witnessed fiscal masochism: public spending actually increased last year from 48.6pc to 49pc of GDP, a level certainly fashionable in the 1970s, on the OECD's numbers; government revenues are up from 40.3pc of GDP to 42.4pc. No wonder the economy is flatlining.

To Barber's shame, he introduced a Prices Commission and a Pay Board, in a doomed attempt to control inflation; Osborne hasn't gone that far, of course, but we are getting scarily close to pay controls in finance, and controlled prices are making a return in other industries, including energy.

Barber's Britain was corporatist; so is Osborne's, albeit in a different way. Trade union power has waned. But government has jumped into bed with big business. The Coalition believes it is politicians' duty to help pick winning industries, dish out handouts, guarantee and direct credit centrally and merge foreign and trade policies. Lord Heseltine's approach has triumphed; this coalition doesn't really believe in free markets.

It is not, however, too late for Osborne to break out of this dreary 1970s remake. He could still surprise us at next week's Budget with some pro-growth policies. But he will need to do much more than just fiddle. The indications are that his big idea will be to loosen monetary policy even further. That would be an appalling error of a magnitude similar to Barber's own monetary loosening. It makes sense to change the Bank of England's remit; but not merely to allow ever more inflation.

What we desperately need is progress on tax and deregulation. We won't get all of what is required – a halving of corporation tax, the axing of capital gains tax and the bulldozing of the restrictions preventing the private sector from building and paying for more infrastructure, shale gas plants and homes. But even one of these reforms would make a difference.

Every time supply-siders propose these kinds of reforms, the Coalition's allies are dismissive, arguing that it sends out the wrong signal. Only tax relief for the poor is acceptable, they argue, and reducing other impositions not a priority. Yet, that again is a return to a 1970s way of thinking – even though I agree that the poor are horribly overtaxed and need help.

We must stop obsessing about the short-term distributional impact of policies and focus only on whether they get the economy growing sustainably. For that we need shock and awe tax cuts to make Britain a more attractive place for people and companies to invest in, incentivising them to take calculated risks and create more, better paying jobs, for poor and middle-class alike.

If that also helps the rich, so what?

Previous Tory chancellors understood the potency of revolutionary change, and ignored the squeals of egalitarians. Lord Howe slashed the top tax rate from 98pc to 60pc; Lord Lawson cut it again to 40pc. The Government's problem is that people are getting poorer, as inflation munches into incomes, and the economy is stagnating. Unless that changes visibly, and quickly, how can the Tories hope to win in 2015?

Osborne needs to remind himself of what happened to the last ultra-cautious Tory chancellor who was content with managing decline, and dig deeper into his box of tricks.